LAGOS, July 5 – Nigeria’s debt to suppliers of Premium Motor Spirit (PMS), commonly known as petrol, has surged past $6 billion, doubling since early April. This comes as the Nigerian National Petroleum Corporation Limited (NNPC) grapples with bridging the gap between fixed pump prices and international fuel costs, according to six industry sources briefed by Reuters.

Thank you for reading this post, don't forget to subscribe!

NNPC has faced challenges since the beginning of the year, with delayed payments for PMS imports exceeding $3 billion, as per the Reuters report. Some January imports remain unpaid, with total arrears estimated between $4 billion and $5 billion. Under contractual terms, NNPC is obligated to settle payments within 90 days of delivery.

“The only incentive for traders to continue supplying is the $250,000 per month compensation for late payments per cargo,” noted one industry insider.

At least two suppliers have already withdrawn from recent tenders due to reaching self-imposed credit limits with Nigeria, the sources added, meaning they will withhold further PMS shipments until outstanding payments are made.

Traders typically manage credit risk by setting limits on exposure to individual buyers, adjusting these limits based on company size and operating environment. This cautious approach has influenced Nigeria’s reduced gasoline procurement in June and July, with NNPC expected to import approximately 850,000 tonnes in July, down from the usual one million tonnes in previous months, according to two sources familiar with the matter.

Responding to claims made by traders in the report, NNPC spokesperson Olufemi Soneye dismissed them as “false.”

“False. Did they name the marketers they claim we supposedly owe? Let them name them,” Soneye responded.

President Bola Tinubu’s announcement in May last year ended costly fuel subsidies, allowing pump prices to rise. However, NNPC swiftly capped prices amid public backlash over increased living costs. Industry analysts suggest that the subsidy has re-emerged due to currency depreciation, although NNPC denies its reinstatement.

Critics, including analysts, NGOs, and government officials, have long condemned fuel subsidies as inefficient and prone to corruption. Yet, many Nigerians view subsidized fuel as a vital entitlement, especially amid the current economic hardships.

Recent unrest in Kenya, prompted by planned tax hikes, underscores regional sensitivity to cost-of-living pressures. Meanwhile, Senegal, Egypt, and Angola are also grappling with subsidy reforms to bolster state finances.

Nigeria, Africa’s largest oil exporter, depends heavily on fuel imports due to neglect of its state-owned refineries. The newly operational Dangote refinery, with a capacity of 650,000 barrels per day, has yet to produce commercial petrol, focusing instead on exporting other fuels.

Decades of corruption and lavish spending have depleted Nigeria’s oil revenues, leaving NNPC financially strained. In late 2023, NNPC secured a record $3.3 billion oil-backed loan from Afreximbank and a consortium of traders, including Gunvor, to stabilize foreign exchange reserves.